How blockchain technology could revolutionize international trade

Since time immemorial, technological innovations have shaped the structure of trade and commerce. The discovery of electricity encouraged mass production and the use of steam engines ushered in an era of mechanized production.

From information to communication, technology has been used everywhere to make life easier. For this reason, blockchain technology has been hailed by many as the next big thing, given its use cases that cut across a number of industry verticals.

Blockchain technology is mainly used to keep track of transactions, and is a type of distributed ledger technology.

Blockchain makes a difference

According to Statista, blockchain makes it easier, more transparent and even more secure to keep data records. Mostly because of its resistance to change, blockchain offers time-based information about transactions, whether they are between individuals, corporate entities, supplier networks, or even an international supply chain.

It is also a common belief that blockchain is a technology only for Bitcoin (BTC). However, that assumption could not be more wrong. While the technology emerged alongside Bitcoin in 2008, however, its use cases today have evolved far beyond cryptocurrencies. From finance to e-commerce, food safety, voting exercises and supply chain management, the applications cut across virtually every sector of the global economy, including areas directly or indirectly linked to international trade.

The value chain linked to international trade is particularly complex. While the transactions involve multiple actors, the other aspects such as trade finance, customs administration, transport and logistics all benefit from the use of blockchain technology.

According to Statista, cross-border payments and settlements represent the biggest use cases of blockchain technology, especially considering how there have been many previous attempts to digitize trade transactions.

As of today, the potential of blockchain to improve the efficiency of trade processes has already been explored. For example, the blockchain project Open Food Chain is working to improve food safety via its Komodo Smart Chain.

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Kadan Stadelmann, CTO of Komodo – technology provider and open source workshop – told Cointelegraph:

“Blockchain’s biggest advantage is immutability, which means that data cannot be deleted or edited after it is on the ledger. For international trade, this provides an opportunity for more transparency across several major industries.”

Stadelmann explained that the technology ensures that food products can be traced from their origin (ie a farm in another country) to the consumer’s local supermarket. He said this could help improve food safety around the world by tackling problems such as food contamination outbreaks as 600 million – nearly 1 in 10 people in the world – fall ill after eating contaminated food and 420,000 die each year, according to the WHO.

Blockchain can streamline the complex documentation processes prevalent in international trade. Zen Young, CEO of non-custodial web authentication infrastructure Web3Auth, told Cointelegraph:

“Digitizing documents for traditional clearance processes and transactions in international trade can take up to 120 days to complete, but with bills of lading tracked through blockchain, the need for such processes and the potential for duplicate spending is eliminated.”

“Transfer payments and transactions are also faster and cheaper than currently possible through the SWIFT network, blockchain commissions are lower and without maximum limits, which is particularly beneficial for exporting goods,” he said.

Furthermore, Zen added that these factors will help reduce fraud through digitally verifiable and legally enforceable non-paper documentation.

In another use case, IBM and Maersk are working on a blockchain-based solution to streamline the global shipping industry. The project, called TradeLens, is designed to digitize the entire shipping process on a blockchain.

The ultimate goal is to create a more efficient and transparent supply chain that can speed up delivery times while reducing costs. So far the project has been successful in onboarding over 150 organisations, including major port operators, shipping lines and logistics providers.

According to IBM, TradeLens has processed over 150 million shipment events and has saved users an estimated 20% in documentation costs. In addition, the platform has reduced the time it takes to ship goods by 40%.

As blockchain continues to gain traction in various industries, it is only a matter of time before its potential is fully realized in the world of international trade. With its ability to streamline processes and reduce costs, blockchain has the potential to revolutionize the way goods are traded around the world.

Despite the promises, however, there are some weak points in blockchain technology’s application to international trade.

Blockchain’s shortcomings

The main disadvantage of using blockchain is the fact that it is often associated with high transaction costs. For example, when it comes to cross-border payments, blockchain technology has been known to be quite expensive.

This is because blockchain transactions often involve multiple intermediaries, which can increase costs. In addition, the time it takes to settle a blockchain transaction can be quite long, which can also increase the overall cost.

Another disadvantage of blockchain is its lack of scalability. Due to the fact that each block in a blockchain must be verified by all nodes on the network, the system can often bog down when handling large volumes of transactions.

This can lead to delays in the processing of transactions, which can be a major problem in international trade.

Finally, according to Deloitte, blockchain technology is still in its early stages of development, which means it is subject to a number of risks and uncertainties. For example, there could always be a risk that a critical flaw could be discovered in the scalability and privacy framework that could pose a problem to the financial end of the operation.

In addition, there is also a risk that bad actors can exploit vulnerabilities in the system to commit fraud or theft. These risks must be carefully considered by those who wish to use blockchain technology in international trade.

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Despite these drawbacks, it is important to note that blockchain technology is still in its early stages of development. As the technology matures, it is likely that many of these issues will be addressed and resolved.

As more and more organizations begin to adopt blockchain technology, the overall cost of using the system will likely decrease. This could make blockchain a more viable option for those looking to streamline their international trading operations.

Ultimately, blockchain technology has the potential to revolutionize the way goods are traded around the world. With its ability to streamline processes and reduce costs, blockchain has the potential to make international trade more efficient and transparent.